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Etihad disposes of European investments

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Etihad Airways has pulled the plug on its third European equity partner in less than six months after Germany's second largest carrier, Air Berlin, filed for bankruptcy yesterday, raising fresh concerns over the Emirati carrier's future involvement in Air Serbia, in which it holds a 49% stake. Etihad yesterday withdrew its financial support of Air Berlin, which will continue flying with the help of a government loan likely to last it until mid-November. Air Berlin has racked up more than 2.7 billion euros in losses in a little over six years and has net debt of 1.2 billion euros. Etihad bought a 29% stake in the company in 2012. Its two board representatives have resigned from the German airline. In May, Alitalia, in which Etihad holds a 49% stake, filed for bankruptcy. In addition, the Emirati airline recently sold its minority share in Swiss regional carrier Darwin Airline.

Serbia's Prime Minister, Ana Brnabić, said last week that Etihad remains committed to its partnership with Air Serbia despite a review of its investments in Europe. Ms Brnabić noted that recent talks between the government and Etihad Airways went smoothly and that "there is no need to fear for Air Serbia". Air Serbia's CEO, Dane Kondić, also noted last week, "We have a clear commercial mandate and are keenly focused on achieving our business targets as set out by both our shareholders, the Government of the Republic of Serbia and Etihad Airways”. The Serbian airline has stepped up internal consolidation measures in a bid to cut costs in what it says is a "changing competitive landscape". Late last year, the Serbian Minister for Transport, Construction and Infrastructure, Zorana Mihajlović, said, "Any sort of information we receive is discussed, be it positive or negative. It is important for us to always have a plan in place for the future. We have all possible strategies prepared concerning Air Serbia". The carrier currently has a wide-ranging codeshare agreement in place with Air Berlin, covering over fifty destinations.

The strategic partnership agreement between Etihad Airways and the Serbian government, unveiled in August 2013, saw the Emirati airline make available a forty million dollar loan facility which was converted into equity on January 1, 2014. This was matched by an equal funding injection by the Serbian government. The two sides each provided further funding through shareholder loans and other funding mechanisms of up to sixty million dollars to meet working capital requirements and support network development. As a result, Etihad was awarded a five-year management contract for Air Serbia. Bonds issued by an Etihad-related special purpose vehicle that has raised a total of 1.2 billion dollars on behalf of Etihad Airways and some of its key strategic partners, including Air Serbia, nosedived yesterday following developments at Air Berlin.

Etihad said it withdrew funding after Air Berlin’s operations deteriorated at an “unprecedented pace” in recent months. “This development is extremely disappointing for all parties, especially as Etihad has provided extensive support to Air Berlin for its previous liquidity challenges and restructuring efforts over the past six years", the company said. It added, in April this year, Etihad provided 250 million euros of additional funding to Air Berlin as well as supporting the airline to explore strategic options for the business. However, Air Berlin's business has deteriorated at an unprecedented pace, preventing it from overcoming its significant challenges and from implementing alternative strategic solutions. Under these circumstances, as a minority shareholder, Etihad cannot offer funding that would further increase our financial exposure. We remain open to helping find a commercially viable solution for all parties.

EY will not focus more on JU, but also will not leave JU. They have no costs they have to bear and there is absolutely no reason to leave JU. And let's not forget it as political decision to take over JU and not economical/ strategical as it was with AB

I don't think this will have an impact on their investment in Air Serbia because A) it is the only one that has had any sort of success since it was taken over B) it was political and not a financial investment

Slovenian government indeed payed 1 mio € to 4k invest to buy Adria and in order to avoid bankruptcy. If I remember correctly, Serbian government payed much, much more than 1 mio € to Etihad/Air Serbia.

Of course Etihad's involvement will cost more compared to 4k invest which was unkniwn until a year ago and no one still knows who is behind them and who is funding them. No one knows who their clients are other than Adria. The money the Serbian government paid went to paying off Jat's debts which was 100% owned to state run Serbian companies anyway.

Even it Etihad leaves I doubt the airline will go bankrupt since the government will just continue funding like it has done up until now. Also if Etihad leaves I assume an arrangement would be made for someone else to take over immediately (like with Darwin).

While I don't think they will leave JU this is important news, because it probably means they will be investing less in JU (not more like someone suggested). So no money will be given for lease of new planes, service improvements etc.

I personally no longer trust EY. The phrase "remain comitted" is rather standard. They are making heavy losses back home in AUH. With no AB and no AZ the network is shrinking, meaning that JU´s market will shrink too.The only way for JU is to focus entirely on Europe and Middle East destinations instead of code sharing on absurd markets.What a mess really, EY has driven chaos.

Same as what happened with EK who only weeks before announcing flights to ZAG denied that they were planning to launch flights to any ex-yu city. QR is another one who constantly announced flights to SKP and SJJ only to continually cancel them.

Alitalia did file in for bankruptcy but will never go bust. This will be their 3rd or 4th bankruptcy and they always come back - even with the same brand. Only the legal name changes. Same will happen again, only without EY on board. As long as the largest Italian banks are afloat there will be money to burn in Alitalia.

What is good in it? People are losing their jobs and you are happy because of it? Terrible.You should better be looking for amount of money your country pays for other airlines to fly to ZAG or why so successful company as OU cannot find strategical partner despite having so many potentials in tourism.Also it would be interesting to make bets what will be next property to be sold by OU in order to keep it "profitable".Maybe you could repost how OU employees had to threaten with strike in order to get their rights.So, look your own backyard.

i thought i was stating facts that could ignite some discussion, but these days it seems all you can get is just this "hater/croat" stuff.a line or two about possible development, future of ey, how much ju will be affected is of the table?

btw, about a month ago i was first to say that i am sorry about the jobs lost, but then i was called out for not understanding how modern market works

It is obvious how exalted you were because of the fact EY leaves AB. And the main point was not AB but theoretical possibility EY to leave JU. That's what would make you extremely happy! Have a fun in your own backyard!

a comment i made on my account which you are not able to get because probably you never made a single joke on yours account and then posting it against me, accusing me of being a croat... ne bih te više zadržavao, što se kaže

Late last year, the Serbian Minister for Transport, Construction and Infrastructure, Zorana Mihajlović, said, "Any sort of information we receive is discussed, be it positive or negative. It is important for us to always have a plan in place for the future. We have all possible strategies prepared concerning Air Serbia".

To me it seems that all this restructuring at AirSerbia is because they were told months back that AirSerbia can expect little financial help from Etihad into the future. The result is probably a more robust AirSerbia should be safe if Etihad completely pulls out.

Ju is tightening its belt and started this process some time ago - not because of anything that is happening in the EY world or with the partners - rather, because of what is happening in its home market - the growing threat of LCCs, as well as the growth of Nis airport. They have to do much more and fast.

Whether they are allowed to do so, will depend on the prevailing political will. Look what happened when they closed 3 of their retail shops outside of Belgrade - such a media storm !

When Etihad announced it was "reviewing European investments" I expected this would happen. I also expected consolidation in JU and I think they should survive in the current form with current measures until 2020. The big elephant in the room is JFK flight which should be suspended to reduce costs but I doubt the government (ie President) will ever allow this.

How big is this elephant exactly? I mean everyone talks about JFK as if it costs JU $100 million every year but so far I haven't seen even an attempt to calculate the loss on the route. But everyone knows it is a giant killer elephant. Can someone provide something specific?

I never said 20M - let the person who did throw it out there to give their rationale. What I said is that by my guestimate it is USD11-12M - it could be more or it could be less. USD20M does sound on the high side.

What we also don't know is how much are the costs in leasing the slots they currently have. They can't be USD8M, so my guess is that it is a maximum of USD15M all up.

Interestingly it was Etihad which in 2009 was suggesting to Emirates to merge with Etihad because of the impact the financial crisis had on Dubai (and no doubt Emirates although they probably displayed record profit). But that was a pill too hard to swallow for Dubai Emir. He already had to name the tallest building in the world in his city after Abu Dhabi Emir. He could not give up Emirates too.

If Ryanair says it, it must be true. I wonder how competitive is when they say they will set aside a couple of millions specifically for price dump and destruction of smaller competitors. They even publicly brag about this! Gosh, for once I hope the mighty Germans will give them a lesson on who really rules the EU.

What is wrong with what Ryanair said? For goodness sake Air Serbia and Alitalia has to cut frequencies between BEG-FCO when Etihad bought Alitalia so there is no distortion of competition but Lufthansa can buy every airline in Europe without an issue and scrutiny.

The only reason German government put the 150 mio loan is so Eurowings operations is undisturbed (AB operates plenty of aircraft for EW), and LH has couple of months to transfer the aircraft and crew to Eurowings.

Not sure what 'plug' people are talking about. Government covers all JU's losses, JU pays market rate ( or perhaps even more) on aircraft leases. They seem to pay for all the services they need from Etihad. What 'skin' does Etihad actually have in JU ? Eur 40m debt to equity conversion, ok. What other investments has Etihad made, and I mean actual cash out of the pocket ?As long as they are not asked to cover losses, as in case of other partners, Etihad will stay.

The question is how Etihad itself is performing. Rumour has it that they are very very far from being a solid company (similar to the state of AB itself) And I do not mean the recently published official loss of 1,9 Billion $

Lets be realistic, we all knew Alitalia and Air Berlin were EY's biggest problems. Now that they are getting rid of them, I think EY might focus more on smaller carriers, like AS, and actually do something positive with them. I personally think they will not ditch AS, but you never know. It is obvious AS is doing everything they can to reduce costs, including cancellation of strategic important routes that are making losses.

But they have much less routes to Serbia than to Croatia. LH groups have 7 daily flight to Serbia, and 30 daily flights to Croatia. So, again what you thing are they interested so much compare to Croatia?

Bcoz AS flies to 5 german cities, which means they have over 30 flights per week to Germany, 14 flights pw to Austria and Switzerland - so that's over 60 flights pw to mkts that cover the core LH group...i think that's more than enough reason to be interested

"Serbia's Prime Minister, Ana Brnabić, said last week that Etihad remains committed to its partnership"-

Thats what Etihad has been saying until last week for Air Berlin as well! They said two weeks ago in an interview that they are fully committed to Air Berlin. This is how the world lokks only a few weeky later. No single penny. Etihad will only remain committed to Air Serbia, if they DO NOT have to give a single penny.

EY will keep Air Serbia as long as Serbian government is paying 40 mil $. That means they will pay 400 mil $ in 10 years?! I doubt in this scenario, but who knows, sometimes there is no economic logic when politic is involved.

News that Etihad's partner Air Berlin has followed Alitalia into a formal restructuring process on top of the Gulf carrier's own exit from holdings in Darwin Airline and, before that, Aer Lingus leaves its European investment strategy in a state of disarray.

The best solution is to fire that incompetent Dane and bring a professional CEO who knows how to turnaround a failing airline. Dane has been around since the beginning and all he has done is increase the airline's problems.

What JU planes? Jat had 8 operational planes in June 2013. Remember how many flights were cancelled because of fleet shortage and how many routes went as triangle flights because of lack of aircraft? Do you know only 1 B737 was allowed to fly to Paris because it was the only one that met all standards?

I realy don't understand why everybody is worried ???!!! As we all know JU is 100% state owned company and likely Serbia is not a EE member.The bottom line is : may god give to all the serbian people their health so they can pay JU debts by their taxes .... so simple !!

The EY disposal of it's european investments has to be seen in a wider context. Mrs. Merkel was together with the minister of transport in AUH in May. The future of AB and the LH involvement was discussed for sure. EY promised to help AB until early 2018 to keep the bancruptcy out of the election campain 2017 and to leave time for the AB CEO Winkelmann (former LH employee) to finalize the AB-LH deal behind the curtains. However the AB losses were too high and the "bomb" exploded now, leaving the Merkel government in "nebrano grozdje". So they decided to help out with a loan of 150 million Euros to keep AB afloat for the next 3 months. Several hundred thousand of holiday makers are abroad with AB and with an immediate grounding it would have created a gigantic cry out and media campain against the government. Now back to EY-JU relations. One can bet that LH will not tolerate a mini-hub in s/eastern Europe harming their strategic interests. So there are twi exit scenarios. EY disposes of JU and LH buys the 49% stake and merges with Adria or the government arranges the 49% EY stake to be sold to HNA group, being part of a wider deal. I think, that knowing the ties between Vucic and Merkel, ASL will go to LH (through Adria holding) and the Chinese will be getting the airport to keep the calm.

Might be true, but up to now (even before EY entered JU) LH showed actually no interest for JU. Let's not forget that, similar like OU, JU was offered couple of times, but it was not sold until Vucic negotiated it with decision makers in AUH.

I believe the alternative with HNA Group is more realistic, but in that case LH would again have competitor in south east Europe.

It seems to me that LH wants to kill competition in this region, but without taking them over / having any cost. They simply want it to dissapear in order they could step in once it happens.

When the subsidies by Serbian govt stop, be it by injecting the money directly or indirectly via BEG, fuel pricing policy etc...Etihad will pull the plug imediately. And JU should prepare for that scenario realy soon, because if they are cought off-guard, it is going to be very rough.

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